There’s nothing quite the same as experiencing that eureka moment when you decided your idea was more than just a pipedream and it’s time you did something about it.
Telling your friends and family, brainstorming until you run out of Post-it notes, designing a great business model… these are the first steps towards becoming your own boss, and it feels great.
That’s when the stress kicks in.
The majority of entrepreneurs I meet rely on bootstrap finance to kick themselves off, but there comes a time when you really need to think about how you plan on ensuring your business has some steady cash flow to implement the necessary next steps.
I’ve written a lot about alternative finance and the different routes available for startups today.
For an investor, willingness to give away a lump sum of cash to a startup who has limited past experience and a very fragmented idea of their financials and future profits is intimidating due to the amount of risk attached to that deal.
Consequently, investors are very cautious and will ask questions and perform as many checks necessary to inspire enough confidence in your business model to justify their signature on the dotted line.
It’s hard for startups not to bite the hand off any investor offering much needed capital to facilitate growth. However, this is where a lot of entrepreneurs go wrong.
This being common knowledge, it’s hard for startups not to bite the hand off any investor offering much-needed capital to facilitate growth.
However, this is where a lot of entrepreneurs go wrong.
Due diligence doesn’t just work one way; you need to have enough assurance in your idea, your team and your pitch to make an investment deal work for you.
When you’re pitching, think about your hook – tell a story and get them excited, don’t just bog them down with figures that may or not come to fruition. Illustrate your passion and remember that, as a startup, all good investors will expect you to fail at first, so never overpromise and under deliver.
It’s important to demonstrate how your investor can realise their investment by outlining a prospective exit strategy.
Whilst it’s very important to talk about numbers, scale, growth and margin, don’t leave out how you plan to execute your strategy.
Ideas in themselves don’t make money. It’s excellent execution that delivers results.
Appointing an investor to your board is like a marriage, you need to work with them day to day.
As an entrepreneur, you need to know what kind of investor you’re looking for. It’s not just about finding a person with deep pockets to keep financing your company; it’s about finding someone who believes in your product almost as much as you do.
Appointing an investor to your board is like a marriage, you need to work with them day to day. Whoever you chose is likely to be on the board for years, therefore, you need to consistently work on the relationship, which will take time to nurture.
It should also be a pre-requisite that your potential investor has experience scaling and selling a business in the same industry as you.
Remember that the best thing about angels, other than their money, are the contacts they’ve managed to curate over years of experience. The doors that could be opened by appointing an angel investor absolutely have the potential to transform your business.
By sitting on your board, the investor will play an essential role in discussing and setting the strategic direction of your business. By pulling you away from the day-to-day to focus on the strategic issue of what maximises value creation they will hone your strategic thinking and steer the direction of the business.
This is exactly why working with the wrong investor could be a major deterrent for your business.
If you’re in the phase of pitching for investment, be sure to ask every relevant question you can think of can and learn as much as you can about them and their experience, before you make a decision.
If they’re a right fit, this could be the first step towards success, not only in this round of finance but future rounds (depending on your relationship management).
On the contrary, if they’re not right, don’t be afraid to walk away, otherwise, you’ll end up with a pile of legal fees trying to get out of a sticky situation.